TNAG-1270-FCO40-1620-Financial-policy-in-Hong-Kong-1983 — Page 211

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CONFIDENMALI

BUELVED IN APOISSY JL.

20 OCT 1983

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FM HONG KONG 23084OZ SEP 83

TO IMMEDIATE FCO

TELEGRAM NUMBER 1427 OF 28 SEPTEMBER

AND TO IMMEDIATE HONG KONG GOVERNMENT OFFICE LONDON, CG NEW YORK, WASHINGTON, BRUSSELS, UKMIS GENEVA

FOR HONG KONG GOVERNMENT REPRESENTATIVES.

REF: HKG/GT/36

SUBJECT: HANG LUNG BANK

AT AN EXTRAORDINARY SITTING OF THE LEGISLATIVE COUNCIL ON 27

SEPTEMBER A BILL WAS PASSED, AND SUBSEQUENTLY ASSENTED TO BY THE GOVERNOR, PROVIDING FOR THE ACQUISITION BY THE HONG KONG

GOVERNMENT OF THE HANG LUNG BANK, WHICH IS A LOCAL BANK HAVING 23 BRANCHES. THUS, THE BANK OPENED FOR NORMAL BUSINESS TO-DAY

UNDER GOVERNMENT OWNERSHIP, UNDER A NEW BOARD CHAIRED BY THE

SECRETARY FOR MONETARY AFFAIRS AND WITH A SENIOR MANAGEMENT

TEAM FROM THE HONG KONG AND SHANGHAI BANKING CORPORATION.

2. THIS ACTION FOLLOWS 12 MONTHS OF UNCERTAINTY OVER HANG LUNG

BANK. IN SEPTEMBER 1982 THERE WAS A SHORTLIVED RUN ON THE BANK,

APPARENTLY SPARKED BY UNFOUNDED RUMOURS ABOUT AN ALLEGED ASSOCIATION

WITH A FAILED JEWELRY COMPANY. A MONTH OR SO LATER THE BANK WAS

AGAIN UNDER ATTACK AS A RESULT OF THE FAILURE OF A DEPOSIT-

TAKING COMPANY, DOLLAR CREDIT AND FINANCING, WITH WHICH THE BANK

HAD CLEAR LINKS. EVER SINCE, THE POSITION HAS BEE FRAGILE.

3. THE GOVERNMENT WAS IN CLOSE AND CONTINUOUS TOUCH WITH

DEVELOPMENTS AND SEVERAL CONFIDENTIAL CONTINGENCY PLANS WERE

DRAWN UP. THE PROBLEM FACING HANG LUNG WAS THAT AT HAD A HOST

OF NON-PERFORMING LOANS ON HTS BOOKS, FOR WHICH BAD MANAGEMENT WAS CLEARLY VERY LARGELY TO BLAME: MEANWHILE, IT HAD DIFFICULTY RECOVERING CUSTOMER DEPOSITS THAT HAD BEEN LOST LAST YEAR: AND

OTHER BANKS WERE NOT WILLING TO EXTEND CREDIT TO IT.

4. MATTERS CAME TO A HEAD YESTERDAY, WHEN HANG LUNG REPORTED THAT

IT WAS UNABLE TO MEET ITS LIABILITIES IN RESPECT OF CHEQUES DRAWN

BY CUSTOMERS. THE GOVERNMENT TOOK THE VIEW THAT IT WOULD BE UNACCEPTABLE, 80TH DOMESTICALLY AND INTERNATIONALLY, TO ALLOW THE BANK TO FAIL, AND THUS ACTED SWIFTLY WITH ITS CONTINGENCY ACQUISITION PLAN. THE ROUTE WAS TAKEN BECUASE IT WOULD HAVE BEEN

WRONG TO PUT PUBLIC MONEY INTO A COMPANY OVER WHICH THE GOVERNMENT

HAD NO CONTROL, AND IN THE PRESENT OWNERSHIP OF WHICH THE GOVERNMENT

HAD NO CONFIDENCE.

CONFIDENTIAL

ILINE

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